Sensex crashes 518 pts on rail budget, profit-booking

The railway budget appeared to give the jitters on Tuesday to a stock market in the midst of a heady rally. The benchmark Sensex plunged 2%, attributed to a blow-expectation Rail Budget for 2014-15 on the one hand profit-booking after a new life-time high reached a day earlier.

Market watchers said the outlay for the railways at Rs 65,445 crore was lower than expected, which was seen as weak on growth.

The Sensex closed down 518 points, or 2.0%, to 25,582.11 and the broader NSE Nifty also fell 164 points, or 2.1%, to close at 7,623.20. This was their biggest single-day declines since September 3, last year.

Rail stocks, which had run up sharply over the past few months, fell up to 20% post the budget announcements.

Among the 30 Sensex stocks, 27 stocks ended in the red, led by BHEL (down 8.2%), NTPC (down 5.4%) and Tata Power (down 5%).

Other prominent losers on the BSE included realtor Unitech, which declined 13%, and Jaiprakash Associates, which fell 10%.

“...the budget was about operationalising legacy projects which were languishing as no focus was there on execution of these projects. It was this absence of big-bang announcement that led to a sharp correction in markets,” said Ritesh Jain, chief investment officer, Tata Asset Management Ltd.

“The budgeted outlay in railways is just in line with the inflation rate. One should expect the federal budget to be even tighter on spending as situation for broader economy is much worse than for railways,” said G Chokkalingam, founder of Equinomics, a research firm.

Analysts said the focus will now shift to the Union Budget even as finance minister Arun Jaitley reiterated his message of fiscal discipline on Tuesday by saying that a “judicious balance” should be struck between expenditure and tax collections.

Experts advised cautious investments as there was likely to be some volatility this week. However, many remained bullish on market outlook and said that they expect another rally post the announcements on Thursday.

“In the near-term the Nifty could consolidate in 7,400-7,500 range. However, post budget, the Nifty could move up above 8,000,” said Mathews.